Frontier Communications: Dividend Cut Is Imminent And Inevitable

While the 20.5% dividend that Frontier Communications (NYSE:FTR) pays seems very attractive, I think it is likely to be cut. In 2016, Frontier Communications was only able to pay its dividend by issuing new debt. The free cash flow dropped throughout the last 5 years and a higher percentage of free cash flow went to dividends in 2015 and 2016. This indicates that the company is having a hard time keeping up with its payments.

Still, the board is trying to keep the stock attractive to stockholders by all but promising to maintain the dividend. This scenario seems unlikely because the company would not have been able to pay its dividend in 2016 if it had not issued $1,487 million in net debt. This article will focus on the company's (in)ability to keep paying its debt and explore what options management has to solve this problem. There are a few options if management wishes to uphold the current payout ratio: increasing its revenue (and thus cash flow), issuing new debt and increasing margins by lowering costs.


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